MM Forgings

MM Forgings manufactures various grades of forgings (carbon, alloy, micro-alloy and stainless steels) in the 200 gm to 60 kg weight range, mainly for automotives (accounting for ~80% of sales). 

For first nine months of FY16, company clocked sales of Rs. 378 crore and EBITDA of Rs. 87 crore, strengthening margin to 23.1%, from 22.5% in FY15, given the decline in prices of key raw material steel. PAT of Rs. 40 crore lead to an EPS of Rs. 32.40, with net margin improving to 10.35% during 9MFY16, from 10.06% in FY15. It has paid an interim dividend of Rs. 3 per share for FY16. On net worth of Rs. 264 crore, as of 30th September 2015, company has gross debt of Rs. 204 crore and cash / equivalents of Rs. 92 crore, leading to net debt to equity ratio of 0.43:1, which is quite comfortable.  

The stock was recommended by us in Feb’16 at Rs.391 with a target price of Rs.500 over the next 8-10 months, translating into 28% return during this period.